EXCLUSIVE: Cough up, Sars tells BAT-SA
The South African Revenue Service (Sars) is pursuing the local operation of global cigarette giant British American Tobacco (BAT), claiming R143m for alleged tax fraud and evading excise duties.
The alleged contraventions, which BAT-SA vehemently denies, saw the company allegedly receiving undue rebates from Sars. Instead, BAT-SA claims Sars still owes it R30m in rebates.
According to a letter from Sars to BAT-SA thatBusiness Times has seen, the rebates were received after BAT-SA applied to Sars to reprocess millions of cigarettes, including the Princeton brand, because of apparent manufacturing defects.
Sars found BAT-SA allegedly lied about the reasons for reprocessing the cigarettes, and in some cases merely changed the packaging to reflect a "limited edition" cover.
Sars gave BAT-SA a way out: pay a R5m fine, R102m in excise duties and forfeitures and R36m in interest, in place of facing prosecution.
BAT-SA sponsors the Tobacco Institute of SA (Tisa) #TakeBackTheTax campaign. In 2013 and 2014 Sars warned Tisa that its members were involved in tax dodging.
BAT-SA is embroiled in a separate battle with Sars over allegations of failing to pay R2bn in taxes and interest. In its 2018 annual report BAT said it was involved in several international audits of VAT and excise, sales, corporate taxes and withholding taxes. It said Sars was challenging it over assessments worth R2.1bn from 2006 to 2010.
Sars declined to comment, citing taxpayer confidentiality.
The leaked letter says the alleged contraventions were discovered after a Sars audit found discrepancies in information BAT-SA provided from its own internal audit. The Sars audit began on February 21 2014 and looked into BAT-SA's operations between January 2012 and January 2014.
Acting Sars commissioner Mark Kingon brought the illicit-economy unit and the large-business unit back to life after former commissioner Tom Moyane shut them down in 2014. In October 2014 Moyane also shut down an enforcement unit responsible for combating the illicit tobacco trade. Moyane was suspended in March 2018 and fired in November.
In the leaked letter dated October 25 2018 Sars highlights how BAT-SA allegedly committed fraud through false declarations, misrepresentations and non-disclosure of material facts. "The purpose of this letter is to inform you of the status and prima facie findings of our audit. The intent of this letter is to afford you the opportunity to respond to the preliminary findings on or before 22 November 2018," the letter states.
Neither BAT-SA nor Sars would tell Business Times whether the manufacturer had met this deadline.
The letter reveals that while BAT-SA appealed against Sars's audit findings, with Sars's national appeals committee withdrawing the matter in July 2018, this did not mean the matter was closed.
Sars says in the leaked letter: "Arising from the audit of your records . and additional submissions made during the appeal process, it is considered that you have contravened several provisions of the act.
"The commissioner is of the view BAT-SA did not disclose all material facts when requested by the auditors. Additional submissions were presented at the time of the BAT-SA appeal, which the auditors [were] not privy to at the time of the audit.
"The additional submissions are indicative of non-disclosures of material facts, misrepresentations and false declarations . The alleged non-disclosure, misrepresentation and false declarations resulted in a loss to the fiscus and entitled BAT-SA to a reduced excise duty liability they were not entitled to."
The letter claims the cigarettes were not reprocessed. "It only entailed a process of replacement of the outer covers with decorated limited edition covers.
"Reprocessing of cigarettes will relate to the process of ripping the cigarettes and using the tobacco to make new cigarettes on which duty will be paid once entered for consumption . different reasons were stated in the Sars application compared to the actual reasons according to BAT-SA submissions."The letter shows BAT-SA told Sars one of the reasons for reprocessing was due to an incorrect pricing label, but auditors found BAT-SA claimed rebates on cigarettes it gave away for free.A cigarette industry source said "manufacturers apply to reprocess cigarettes with the condition being the tobacco must be reused to reproduce other cigarettes". Sars must give permission "because this is where a lot of crookery happens".BAT-SA spokesperson Mandlakazi Sigcawu said: "BAT collected and paid more than R9.1bn in tobacco tax in SA last year. BAT-SA is currently owed about R30m by SARS, which it is erroneously withholding on the basis of wrong conclusions drawn by the audit team."Tisa chairperson Francois van der Merwe said: "All Tisa members were compliant with all laws."firstname.lastname@example.org..